Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

The following is discussion should be read in conjunction with the accompanying
unaudited consolidated financial statements and related notes thereto, included
elsewhere in this Quarterly Report on Form 10-Q and in conjunction with our
Annual Report on Form 10-K for the year ended December 31, 2013 that was filed
with the SEC on March 31, 2014.

Forward-Looking Information

Certain statements contained in this report on Form 10-Q are not statements of
historical fact and constitute forward-looking statements within the meaning of
the various provisions of the Securities Act of 1933, as amended, (the
"Securities Act") and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including, without limitation, the statements specifically
identified as forward-looking statements within this report. Many of these
statements contain risk factors as well. In addition, certain statements in our
future filings with the SEC, in press releases, and in oral and written
statements made by or with our approval which are not statements of historical
fact constitute forward-looking statements within the meaning of the Securities
Act and the Exchange Act. Examples of forward-looking statements, include, but
are not limited to: (i) projections of capital expenditures, revenues, income or
loss, earnings or loss per share, capital structure, and other financial items,
(ii) statements of our plans and objectives of our management or Board of
Directors including those relating to planned development of future products,
(iii) statements of future economic performance and (iv) statements of
assumptions underlying such statements. Words such as "believes," "anticipates,"
"expects," "intends," "targeted," "may," "will" and similar expressions are
intended to identify forward-looking statements but are not the exclusive means
of identifying such statements. Important factors that could cause actual
results to differ materially from the forward looking statements. include, but
are not limited to:

· Significant competition in our industry;

· Unfavorable publicity or consumer perception of our products;

· Increases in the cost of borrowings and limitations on availability of
additional debt or equity capital;

· Incurrence of material product liability and product recall costs;

· Loss or retirement of directors or key members of management;

· Costs of compliance and our failure to comply with new and existing
governmental regulations including, but not limited to, tax regulations;

· Costs of litigation and the failure to successfully defend lawsuits and
other claims against us;

· Economic, political and other risks associated with our international
operations;

· Failure to keep pace with the demands of our customers for new products
and services;

· Disruptions in our manufacturing system or losses of manufacturing
certifications;

· Disruptions in our distribution network;

· Lack of long-term experience with human consumption of ingredients in some
of our products;

Consequently, forward-looking statements should be regarded solely as our
current plans, estimates and beliefs. You should not place undue reliance on
forward-looking statements. We cannot guarantee future results, events, levels
of activity, performance or achievements. We do not undertake and specifically
decline any obligation to update, republish or revise forward-looking statements
to reflect future events or circumstances or to reflect the occurrences of
unanticipated events.

Business Overview

MusclePharm Corporation is a scientifically driven, performance lifestyle
company that develops, manufactures, markets and distributes branded nutritional
supplements. We offer a complete range of powders, capsules, tablets and gels.
Our portfolio of recognized brands, including MusclePharm® Hybrid and Core
Series, Arnold Schwarzenegger Series™, and FitMiss® are marketed and sold in
more than 110 countries and available in over 35,000 retail outlets globally.
These clinically proven, scientific nutritional supplements are developed
through a six-stage research process that utilizes the expertise of leading
nutritional scientists, doctors and universities.

Our Growth Strategy

Our primary growth strategy is to:

· Drive innovation, serve the needs of all athletes and fuel the engine of
sport through new products and brand extension;

MusclePharm is an aggressive growth company with a portfolio of brands that we
believe fuels growth across all categories and geographies. For the three months
ended March 31, 2014 we grew net sales to $50.2 million, up 123%, with a 2-year
74% compound annual growth rate ("CAGR").

Biozone Acquisition

As more fully discussed in Note 16, the Company closed the transactions
contemplated in the Asset Purchase Agreement (the "APA") dated November 12, 2013
with BioZone Pharmaceuticals, Inc. ("BioZone") and its subsidiaries, BioZone
Laboratories, Inc., and Baker Cummins Corporation (collectively, the "Seller").
At closing, the Company acquired substantially all of the operating assets of
BioZone, including all assets associated with QuSomes, HyperSorb and EquaSomes
drug delivery technologies and the name "Biozone", "Biozone Laboratories" and
similar names and domain names.

Biozone is a developer, manufacturer, and marketer of over-the-counter drugs and
preparations, cosmetics, and nutritional supplements. The acquisition of Biozone
was completed to allow us to take the first steps in vertically integrating our
supply chain, and will give us the opportunity to start manufacturing some of
our own products, which are currently produced by third party manufacturers. We
also anticipate leveraging Biozone's research and development assets to reduce
operating expenses paid to third parties for testing and certification of our
products.

Net sales increased approximately $27.6 million or 123% to $50.2 million for the
three months ended March 31, 2014, compared to $22.6 million for the three
months ended March 31, 2013. This increase in sales was due to the successful
execution of our growth strategy that includes driving innovation, serving the
needs of all athletes, fueling the engine of sport through new products, brand
extensions, and increasing our product distribution and sales through increased
market penetrations both domestically and internationally.

A key area of growth for the three months ended March 31, 2014 was increased
sales in international markets. International sales are included in the results
of operations and increased approximately $11 million or 176% to $17.2 million
for the three months ended March 31, 2014, compared to $6.3 million for the
three months ended March 31, 2013.

Discounts and sales allowances

Discounts and sales allowances for the three months ended March 31, 2014
increased to approximately $6.5 million, or 11% of gross sales as compared to
$2.4 million or 9% of gross sales for the three months ended March 31, 2013.
This 2% of gross sales increase is primarily due to promotions surrounding our
Arnold product line during the Arnold Fitness Expo during first quarter. Our
Arnold product line is a new product line that we developed and co-branded with
Arnold Schwarzenegger and was launched in September 2013.

Gross Profit

Gross profit increased approximately $9.7 million or 119% to $17.9 million for
the three months ended March 31, 2014, compared to $8.2 million for the three
months ended March 31, 2013. The increase was due to the successful execution of
our growth strategy as well as improved supply chain optimization, operational
infrastructure improvements, enterprise resource planning (ERP) and reporting
systems integration and key management hires.

Operating Expenses

Operating expenses for the three months ended March 31, 2014 increased to
approximately $15.4 million, compared to approximately $8.9 million for the
three months ended March 31, 2013, a $6.6 million increase. As a percent of
sales, operating expenses decreased from 39.4% for the three months ended March
31, 2013 to 30.8% for the same period in 2014. These expenses included necessary
infrastructure improvements, new growth platforms and initiatives, and staffing
increases to establish a scalable organization.

Advertising and promotion expenses were $6.3 million, or 12.6% of revenue, for
the three months ended March 31, 2014 compared to $2.3 million, or 10.3% of
revenue, for the three months ended March 31, 2013. Of this increase, $2.2
million is for expenses related to the strategic partnership that we entered
into with Arnold Schwarzenegger as more fully discussed in Note 15.

Salaries and benefits were $5.4 million, or 10.7% of revenue, for the three
months ended March 31, 2014 up from $1.2 million, or 5.5% for the same period in
2013. Included in this increase is $2.3 million related to amortization of
restricted stock awards granted to employees, directors and executives.

Professional fees decreased significantly for the three months ended March 31,
2014 to $0.8 million from $4.1 million for the same period in 2013. Expenses in
2013 included the final settlement of legacy consulting agreements and legal
fees that were incurred as part of the recapitalization of the Company.

The following table provides an overview of total operating expense by category
and percentage of each of net revenue:

Our net income from operations for the three months ended March 31, 2014, was
$2.4 million, compared to a net loss of $0.7 million for the three months ended
March 31, 2013.

Other Income (Expenses)
Other income was $0.3 million for the three months ended March 31, 2014,
compared to other expense of $6.6 million for the three months ended March 31,
2013. Components of other income (expense) are as follows:
Three Months Ended
March 31,
2014 2013
Derivative expense $ - $ (96,913 )
Change in fair value of derivative liabilities 484,234 (6,044,643 )
Gain on settlement of accounts payable and debt 5,499 276,985
Interest expense (39,373 ) (780,320 )
Foreign currency transaction loss (30,106 ) (5,610 )
Interest income 222,756 -
Unrealized loss on derivative instrument and debt securities (386,103 ) -
Other income 87,600 10,000
Total other income (expense) $ 344,507 $ (6,640,501 )

The change in the fair value of the derivative liability went from expense of
$6.0 million for the three months ended March 31, 2013 to a gain of $0.5 million
for the three months ended March 31, 2014. Interest expense also decreased by
$0.7 million for the same time period due to the elimination of convertible debt
in 2013.

Net Income (Loss)

Net income for the three months ended March 31, 2014 was $2.7 million, or $0.27
per basic share outstanding and $0.23 per diluted share outstanding compared to
a net loss for the same period of $7.4 million, or $(1.78) per basic and diluted
share. Inflation did not have a material impact on our operations for the
period.

Our primary source of operating cash has been through product sales. Our
principal use of cash has been to purchase inventory, pay for operating
expenses, and acquire capital assets. At March 31, 2014, we had cash of $3.3
million and working capital of approximately $18.3 million, compared to cash of
$5.4 million and working capital of approximately $12.2 million at December 31,
2013. The working capital increase of approximately $6.1 million was due to a
net increase in accounts receivables of $5.9 million, an increase in inventory
of $0.9 million, a decrease in accounts payable and accrued liabilities of $1.2
million, a decrease in derivative liabilities of $0.5 million offset by a
decrease in cash of $2.1 million and a decrease in prepaid expense of $0.3
million.

Included in our working capital as of March 31, 2014 and December 31, 2013 are
restricted cash balances of $2,500,630 and $2,500,014, respectively. The
restricted cash balance is cash collateral for a line of credit that we secured
through US Bank in December 2013 as more fully discussed in Note 8(A) in our
Notes to Consolidated Financial Statements.

The Company's management believes that with continued growth and increased sales
expansion, we will be able to fund operations with operating cash flow; however,
the Company may need to continue to raise capital in order execute the business
plan, which includes buying more inventory and broadening the sales platform.
There can be no assurance that such capital will be available on acceptable
terms or at all.

Cash used in operating activities was $0.8 million for the three months ended
March 31, 2014, as compared to cash used in operating activities of $3.2 million
for the three months ended March 31, 2013. The decrease in cash used in
operating activities of approximately $2.4 million was primarily due to an
increase in our net income of $10.1 million and unrealized losses of $0.4
million derivative assets and debt securities, offset by a decrease in non-cash
expenses and income of $2.5 million, an increase in accounts receivable, prepaid
expenses, and inventory of $1.4 million, and a decrease of $4.2 million in
accounts payable and accrued liabilities.

Cash used in investing activities increased to $1.3 million from $0.2 million
for the three months ended March 31, 2014 and 2013 due to increased investments
in fixed assets including leasehold improvements.

Cash used in financing activities was nil for the three months ended March 31,
2014, compared to cash flows provided by financing activities of $11.9 million
for the three months ended March 31, 2013. The $11.9 million decrease was due to
$16.4 million decrease in the proceeds from issuance of preferred and common
shares offset by a decrease in the repayment of debt of $4.4 million and $0.1
million for the purchase of treasury shares.

Off-Balance Sheet Arrangements

Other than the operating leases, as of March 31, 2014, we did not have any
off-balance sheet arrangements. We are obligated under operating leases for the
rental of office space. Future minimum rental commitments with a remaining term
in excess of one year as of March 31, 2014 are as follows:

Our consolidated financial statements have been prepared in accordance with U.S.
Generally Accepted Accounting Principles and form the basis for the following
discussion and analysis on critical accounting policies and estimates. The
preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. On a
regular basis, we evaluate our estimates and assumptions. We base our estimates
on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results could differ from these
estimates and those differences could have a material effect on our financial
position and results of operations. Management has discussed the development,
selection and disclosure of these estimates with the Board of Directors and
Audit Committee.

A summary of our significant accounting policies is provided in Note 2 of the
Notes to Consolidated Financial Statements in Item 1 of this report. We believe
the critical accounting policies and estimates described below reflect our more
significant estimates and assumptions used in the preparation of our
consolidated financial statements. The impact and any associated risks on our
business that are related to these policies are also discussed throughout this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" where such policies affect reported and expected financial results.
There have been no significant changes to our critical accounting policies and
estimates from those disclosed in annual report on Form 10-K filed on March 31,
2014.

Recent Accounting Pronouncements

In March 2013, the FASB issued ASU 2013-05, which indicates that the entire
amount of a cumulative translation adjustment (CTA) related to an entity's
investment in a foreign entity should be released when one of the following
occur:

· Sale of a subsidiary or group of net assets within a foreign entity and the
sale represents the substantially complete liquidation of the investment in the
foreign entity.

· Loss of a controlling financial interest in an investment in a foreign entity

· Step acquisition for a foreign entity

The ASU does not change the requirement to release a pro rata portion of the CTA
of the foreign entity into earnings for a partial sale of an equity method
investment in a foreign entity. ASU 2013-5 is effective for fiscal years (and
interim periods within those fiscal years) beginning on or after December 15,
2013. The adoption of this pronouncement did not have a material impact on our
consolidated financial statements.